Refinancing expensive short-term business debt

Short-term business loans with daily or weekly repayments are quick to get and hard to live with. One facility can be manageable. Two or three, stacked on top of each other and all drawing from the same account, can quietly eat the cash you need for wages, suppliers and Inland Revenue. Refinancing expensive short-term business debt into one longer, property-secured loan is one of the most effective ways Kiwi businesses reset their cash flow.

This guide shows you how to work out what your current debt is really costing, how to get out of it in the right order, and what to watch for along the way. It's useful whether or not you ever borrow from us. If you own property in New Zealand, we'll also explain how fundU can pay out the lot and give you one loan built around your exit.

What counts as expensive short-term business debt?

Expensive short-term business debt is any facility where the repayments are large, frequent and inflexible compared with the cash your business actually brings in. The price tag matters, but the structure usually does more damage than the price.

The most common types we see New Zealand business owners trying to escape are:

Type of debt	How it's repaid	Why it hurts cash flow
Daily repayment loan	Fixed direct debit every business day	Comes out before customers pay you, even on quiet days
Weekly repayment loan	Fixed debit every week, often over 6–18 months	Big chunk of each week's takings gone before wages
Merchant cash advance	A set share of your card takings held back until a fixed total is repaid	Your best trading days fund the provider first
Stacked facilities	Two or more of the above running at once	Debits compound; one miss can trigger defaults on all
Overdue supplier credit on penalty terms	Lump sums plus late charges	Supply can be cut off, stopping trade

A merchant cash advance is not technically a loan. The provider buys a slice of your future card sales for a fixed amount paid up front. Because it's priced as a fixed total to be repaid rather than an interest rate, many owners never work out the true cost until they're deep into it.

Why do daily and weekly repayments hurt cash flow so much?

Because they're timed around the lender's collection schedule, not your business's cash cycle. Most Kiwi businesses get paid on 20th-of-the-month terms, in seasonal bursts or on progress claims. A debit that lands every day or every Friday doesn't care about any of that.

That timing mismatch causes a chain reaction:

• The account runs thin between customer payments. Daily debits keep going through the gap, so the balance hits zero sooner.
• Other bills get pushed back. GST, PAYE and supplier accounts are usually the first to slip, because they're not debited automatically.
• Penalties start stacking. Inland Revenue adds late payment penalties and interest to overdue tax, and suppliers may put you on stop credit.
• The owner reaches for another facility. Which is how stacking starts.

The RBNZ's May 2026 Financial Stability Report notes that smaller firms rely on both bank and non-bank lending and more often face tougher borrowing terms. Put simply: many good small businesses end up with expensive, rigid finance because it was the only thing on offer at the time, not because it suited them.

What is loan stacking and why is it so risky?

Loan stacking is when a business takes a second or third short-term facility while earlier ones are still running, usually to cover a shortfall created by the first. Each new facility adds its own debit on top of the others.

Stacking is risky for three practical reasons:

1. The debits compound faster than revenue grows. Two daily loans and a merchant cash advance can take a large share of gross takings before a single wage is paid.
2. Many agreements treat new borrowing as a breach. Some short-term facilities prohibit further borrowing without consent, so stacking can trigger a default on the original loan.
3. Security interests pile up. Short-term lenders often register a security interest over business assets on the PPSR. Several registrations make it harder to get finance elsewhere until they're released.

The consequences are showing up in the numbers. Centrix's July 2026 Credit Indicator reported 3,035 company liquidations in the year to May 2026, up 14%, with hospitality up 51% and retail up about 35%. Inland Revenue also reported that about 27,000 businesses had defaulted or missed repayments on Small Business Cashflow Scheme loans at 30 June 2025. Many of those businesses were viable. They just ran out of room.

How do you work out what your short-term debt really costs?

Work in dollars, not percentages. The question that matters is: how much cash leaves your account each month to service this debt, and how much would it take to clear it today?

Follow these steps with your last three months of bank statements in front of you:

1. List every facility. Include loans, merchant cash advances, equipment leases on short terms, overdue supplier accounts on repayment plans and any personal credit you've used for the business.
2. Record the repayment and frequency. Note the exact debit amount and whether it's daily, weekly, fortnightly or monthly.
3. Convert everything to a monthly figure. Multiply daily debits by the number of trading days in a typical month, and weekly debits by 52, then divide by 12.
4. Ask each provider for a written payout figure. Request the amount needed to settle in full on a specific date, including any early settlement terms. Get it by email so you can rely on it.
5. Compare total monthly debt servicing with monthly gross profit. If debt payments are eating most of your gross profit, the business can't breathe, however busy it is.
6. Add up the payouts. This total, plus any urgent arrears such as GST or PAYE, is roughly what a refinance needs to cover.

For a merchant cash advance, the payout is usually the remaining balance of the fixed total you agreed to repay. Ask the provider directly whether any discount applies for settling early, rather than assuming.

When does refinancing into one loan make sense?

Refinancing makes sense when the business is fundamentally sound but the debt structure is wrong. If sales are steady and margins are healthy, yet the account is always empty, the debt is usually the problem, not the business.

It's usually a good fit when most of these are true:

• You, your company, your family trust or a supporting party owns property in New Zealand with usable equity.
• Customers are still buying and the business makes a gross profit.
• The pressure comes from repayment frequency and stacking, not from a collapse in demand.
• You can get written payout figures for every facility.
• There's a realistic way to repay the new loan: a bank refinance once your conduct is clean, a property sale, a contract payment or improved cash flow.

If demand has genuinely fallen away, refinancing buys time rather than fixing the business, and you'll want a plan for the trading side as well. Our guide to alternatives to liquidation covers options when the business needs a bigger reset.

How does refinancing with a property-secured loan work?

A property-secured refinance replaces several short, expensive facilities with one loan secured by a first or second mortgage over New Zealand real estate. Because the lender relies on the property rather than your daily card takings, the loan can be structured around your cash flow.

With fundU, the process usually looks like this:

• One loan pays out everything. We settle each facility directly using the payout figures, so the debits stop together.
• First or second mortgage. If your property has a bank mortgage you want to keep, a second mortgage sits behind it. If the property is unencumbered, or it makes sense to refinance the existing lender out, we can lend by first mortgage.
• Repayments that suit the situation. Depending on the approved terms, options can include interest-only, capitalised interest with no scheduled monthly repayments during the term, or principal and interest.
• A short to medium term with a clear exit. Most owners plan to refinance to a bank once they've shown several months of clean statements, or to repay from a sale or a contract payment. Our guide on exit strategies for short-term business loans walks through the options.

Because we're a direct private lender, our own credit team makes the decision. There's no panel and no committee in another city, so things move quickly. In some cases, funding can happen in as little as 24 hours once approved.

What order should you pay the debts out in?

If a refinance can clear everything at once, order matters less. If it can't, or you're paying things down gradually, tackle the debts that do the most damage first.

Priority	Debt	Why it goes here
1	Overdue GST and PAYE	Inland Revenue adds a 1% penalty the day after the due date and a further 4% on day 7, plus interest, and can take enforcement action
2	Daily debit loans	Highest frequency, biggest drain on day-to-day cash
3	Merchant cash advances	Holdback reduces every card sale until the fixed total is repaid
4	Weekly loans and facilities in default	Default terms can add costs and trigger collection
5	Key supplier arrears	Keeps stock and materials flowing
6	Everything else	Lower-cost, flexible or monthly facilities

When each facility is paid out, ask for written confirmation that the account is closed and that any PPSR registration has been discharged. Keep those letters. You'll want them when you approach a bank later. If tax is part of the picture, our IRD tax debt loans page explains how we can include it in the same refinance.

Example scenario

A transport operator in the Waikato had three facilities running at once: two daily-debit loans taken six weeks apart and a merchant cash advance on card takings from a small depot shop. Combined, the debits were taking roughly a fifth of weekly revenue. GST had slipped two periods behind and a fuel supplier had put the account on hold.

The owner's home was worth about $950,000 with a bank mortgage of around $420,000. fundU arranged a second mortgage of $185,000 behind the bank, which paid out all three facilities, cleared the GST arrears and brought the fuel account up to date. The loan was set up with capitalised interest for the term, so there were no scheduled monthly repayments while the business rebuilt a buffer. The planned exit was a refinance to the bank after twelve months of clean bank statements. This is an illustrative example, not a real customer.

What should you avoid when getting out of expensive debt?

The biggest mistake is taking yet another short-term facility to buy a few more weeks. It feels like relief and usually makes the hole deeper.

Also avoid:

• Simply stopping the debits. Cancelling direct debits without talking to the provider can trigger default terms and collection action. Talk first, then refinance. Our guide on how to talk to creditors and buy time has practical scripts.
• Ignoring Inland Revenue. Tax debt grows with penalties and interest, and IRD's 2026 campaign on overdue GST and employer debt shows it's actively following up.
• Guessing at payout figures. Always get them in writing, dated and specific.
• Refinancing without an exit. Know how the new loan will be repaid before you sign.
• Forgetting your credit file. You can get your credit report free from Centrix, Equifax and Experian. Check it for errors before you apply anywhere.

Can you refinance short-term debt with bad credit?

Often, yes. Owners with stacked short-term debt frequently have a missed payment or default somewhere, and that's exactly why the big banks may say no. A property-secured lender looks at the security, the purpose and the exit first.

fundU considers defaults, arrears, IRD debt and previous bank declines case by case. What helps most is being upfront: tell us about every facility, show us the payout letters and explain what went wrong and what's changed. If your credit history is the main hurdle, our page on bad credit business loans explains how we look at applications like yours.

Key takeaways

• Daily and weekly repayment loans, merchant cash advances and stacking hurt most because of their structure, not only their price.
• Work out the monthly cash drain and get written payout figures for every facility before you do anything else.
• Refinancing works best when the business is sound, you have property equity and there's a clear exit.
• A first or second mortgage loan can pay out everything at once, with interest-only or capitalised interest options.
• Clear overdue GST and PAYE and the daily-debit facilities first if you can't clear everything together.
• Don't add another short-term facility to cover the last one.

Ready to swap the daily debits for one loan?

If expensive short-term debt is squeezing a good business, one property-secured loan can give you room to trade again. fundU lends $20,000 to $1m to New Zealand businesses, and our own team makes the decision. Read more about business debt consolidation, then see if you qualify. It takes a couple of minutes, doesn't affect your credit score, and a lending specialist will call you back. Prefer to talk it through? Call us on 09 875 4577.